Be Ready to Document Losses: 4 Key Considerations
Whether it’s recovering in the aftermath of this year’s typhoon Chan-hom, which battered Guam, Okinawa, China, and Korea, or preparing for the next event in the United States, proper loss documentation after a catastrophe is essential to the recovery and insurance claims process.
Marsh and others in the risk management industry are looking back this month on the tenth anniversary of Hurricane Katrina. It’s is a time to reflect on the losses, recall the lessons learned, and look to the future.
Among the many lessons learned following Katrina was the importance of properly documenting your losses, which can help speed up your recovery.
Here are four things to keep in mind before you have a loss so that you can get back to business as soon as possible in the event of one:
1. Chronicle Your Damages. Buildings, furniture, fixtures, inventory, technology, data and media, technological infrastructure, and equipment are damaged frequently after a major storm. And when operations are interrupted, companies will experience a loss of income, an increase in expenses (“extra expense”), or a combination of both.
In documenting these losses, it is useful to have immediate access to the following types of financial records:
- Fixed asset register and depreciation records.
- Most recent physical inventory.
- Purchase orders or estimates of all contracts for repair or replacement of damaged assets.
- Profit and loss statements for two years prior to the event for all affected locations.
- Budgets and forecasts prepared before the loss to depict anticipated loss results.
2. Be sure to document information that may have been given verbally. For example, consider impacts to business operations. If conversations are held with customers or suppliers that may be material to claim measurement, it is essential to document them. Likewise, as time passes, people’s memories fade, or people change jobs. Every piece of information or recollection of events should be gathered and recorded as soon as practicable.
3. Identify potential issues early on and address them with the entire claims team. Such issues can include required code upgrades, changes that will be made to the pre-loss structure, or other improvements to be made.
4. Be ready for the accounting. Forensic accountants and others involved in the claims process recommend that a new general ledger account be created to capture all expenditures incurred as a result of the loss.
Recovering from a disaster can be a difficult process but thinking about how you’ll document claims before you have to can help smooth the way to a quicker and easier recovery.